Mortgages Uncovered

Gordon Brown said:

“This is not a time for conventional thinking or out-dated dogma, but for fresh and innovative intervention that gets to the heart of the problem.” He did just that, out ahead of the world in bank financing and much praised. He walks and talks like a man who has found his feet, no longer drowning but waving. When he proclaims “The end of the age of irresponsibility”, we have to forget that when it mattered he never once uttered the words he now uses: “The days of big bonuses are over.”

But will this really happen? When the Commons receives the banking bill it will be met by resistance unless it states that taxpayers’ cash will fund it. The FSA and banks are drumming up private deals; the advice they are getting from the FSA is to put as much capital aside as possible and not to indulge in any bonus schemes that may look risky. Advise perhaps that would have been more wisely used to avert this disaster if implemented a year ago. It is expected that Parliament will be angry just as Congress was.

It is expected that MPs will start demanding that any government capital invested into a bank cannot pay out in dividends or bonuses for a minimum of 12 months. Lord Digby Jones has been warning that some of the financial sectors best talent could flee to places such as Mumbai, Dubai and Shanghai if they are denied their big bonuses. However, the wiser observer may suggest it would be better to ‘let them go this’ as this now is a whole new era of sober banking.

The test will come after all this drama is eventually over and the country is looking at years of high unemployment and people and the state are very short of spending money. The overall mood could well turn sour as it is the governments everywhere who will take the blame.

There are 45,000 mortgage defaults and repossessions this year and twice as many predicted for next year. There may be another 25% to add on top of next year’s figures as there will be accelerated numbers of homes lost through credit card debt due to a new law which has hit at a very bad time which suddenly makes it easier for most creditors to repossess houses.

Government can now well start to order banks to begin adopting forbearance on repossessions; people who are in trouble will be allowed to switch to interest-only mortgages.

The Labour government has already passed the allowance to allow unemployed homeowners to use their housing benefit to pay their mortgage interest after 3 months of being out of work; this has been reduced by 6 months. However, this change does not start till April 2009.

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